Crypto judgment overturned: Block Earner succeeds in cross-appeal against ASIC

The Full Court of the Federal Court of Australia handed down its much-awaited decision on 22 April 2025, overturning the judgment of Justice Jackman in the Block Earner case.[1] The decision should give crypto asset providers and market participants further clarity around the application of the complex financial services regime to the digital asset sector.

While the decision was unanimous it may be appealed.  The lack of clarity around the regulation of the digital asset sector means that further guidance from superior courts could be important for ASIC and the market.

On appeal from the original finding in the Block Earner case, the Full Court determined that ‘Earner’ product (Earner) issued by Web3 Ventures Pty Ltd trading as Block Earner (Block Earner) was not a financial product. The Full Court consequently held that Block Earner was not required to hold an Australian financial services licence (AFSL) to offer the product.

ASIC had appealed the original decision of the Federal Court handed down in February of 2024 not to impose any penalty on Block Earner. Justice Jackman had decided that no penalty was warranted, despite finding that Block Earner had issued a financial product without an AFSL.  ASIC sought orders on appeal that a penalty of up to $350,000 be imposed on Block Earner for the contravention.

Block Earner lodged a cross-appeal, claiming that Justice Jackman had erred in finding that the Earner product was a ‘financial product’ within the meaning of s 763A of the Corporations Act 2001 (Cth) (Act), and contended that it was neither an investment scheme managed by Block Earner, nor was it a vehicle for financial investment.

The Full Court made orders dismissing ASIC’s appeal, but allowing Block Earner’s cross-appeal.

Key takeaways

In determining the appeal and cross-appeal, the Full Court considered whether:

• Earner was a ‘managed investment scheme’ for the purposes of s 601ED of the Act;
• Earner was a vehicle for financial investment as defined by s 763B of the Act; and
• Earner was a derivative.

The Court made the following findings on each issue:

Was Earner a managed investment scheme?

Under the Act, a managed investment scheme must (among other things) contain the features of customers or investors contributing money (or money’s worth) as consideration to acquire benefits produced by the scheme.

The Full Court Justices O’Callaghan, Abraham and Button found that Earner was not a managed investment scheme as defined under the Act, and that accordingly, there was no contravention by Block Earner, for the following reasons:

• Firstly, the terms of the loan (Terms) and the Block Earner’s FAQ response (FAQ response) did not provide that any return made by the investors would be derived from Block Earner’s lending activities. Rather, investors received a fixed-rate return of 7% of the annualised percentage yield for loans, paid in ‘USD Coin’ (a form of stablecoin cryptocurrency) and a fixed 4% annualised percentage yield for loans in other cryptocurrencies. Importantly, these returns would be paid irrespective of the performance of Block Earner’s investments.  The contribution made by the investors was not made in exchange for any rights to benefits arising from a ‘managed investment scheme’ pursuant to s 9(a)(i) of the Act.

In other words, the investors had a right to a fixed-rate return, and not a right to receive a share of the benefit (or loss) that Block Earner may have received from the use of the funds.

• Secondly, the words used in the loan clauses were unambiguous and denoted that any prospective investor, “by participating in Lend,…[did] not intend for Block Earner to use the loaned Eligible Cryptocurrency to generate a financial benefit or act as an investment for you” and that any benefit or loss resulting from Block Earner’s lending would not “be passed onto” the investor. There was no intention to pool funds to produce any financial benefit for investors within the meaning of a ‘managed investment scheme’ under s 9(a)(ii) of the Act.

In other words, Block Earner generated a benefit for itself using the pooled funds and repaid the fixed-rate return to the investors from that benefit.

Was Earner a ‘financial investment’?

Under the Act, a person is deemed to have made a financial investment if that person has no day-to-day control over the use of the investment, and any of the three following conditions being satisfied:

1. The investor gives money (or money’s worth) to another person and that other person uses the contribution to generate a financial return or other benefit for the investor (s 763B(a)(i));
2. The investor gives money (or money’s worth) to another person and the investor intends that the other person will use the contribution to generate a financial return or other benefit for the investor (s 763B(a)(ii)); or
3. The investor gives money (or money’s worth) to another person and that other person intends to use the contribution to generate a financial return or other benefit for the investor (s 763B(a)(iii)).

The Full Court held that investors did not use Earner to make a financial investment as defined in the Act for the reasons outlined below.

• Firstly, in referring to Block Earner’s unchallenged evidence that it would loan cryptocurrency borrowed from investors, together with its own cryptocurrency, to third parties at a higher interest rate, its profit was the difference between the amount of interest it was obliged to pay to the investor and the amount it received from the third party, which was not paid to the investor. Block Earner generated a financial return for itself, for its own benefit, not for that of any Investor. This does not satisfy the requirements of s 763B(a)(i).
• Secondly, for s 763B(a)(ii), ASIC did not adduce any evidence from customers as to what they understood the Terms and FAQ response to mean. Further, the Court held that due to Block Earner’s registration process (which is required before using the Earner product), it is appropriate to infer that the users had understood and agreed to the Terms. The Terms were explicit and very clear that the financial benefit (or loss) was not passed to the users. The Court therefore held that “a user could not possibly be taken to have believed that they intended that Block Earner would use their contribution to generate a financial return or other benefit for them”.

Was Earner a derivative?

ASIC argued that investors would receive payments in AUD at the end of their loan and therefore Earner was a derivative as defined in s 761D of the Act. However, the Full Court determined that it was not, as the investors were not required to use the ‘Exchange’ service provided by Block Earner (by which cryptocurrency used in investments would be converted to AUD) and they were able to receive their investments with interest back in cryptocurrency. The Exchange service was a distinct arrangement. This meant that in the language of s 761B(a), the Earner service, when considered by itself, did not constitute a derivative.

Penalty appeal

Separately, ASIC appealed the decision of Justice Jackman that Block Earner be excused from paying a pecuniary penalty for its contraventions of s 911A(5B) and s 601ED(8).

The Full Court disagreed with his Honour’s reasoning at first instance and held that a defendant seeking to be relieved from such liability on the basis of receiving relevant legal advice needs to provide evidence about the advice that they received, and there was no reason for his Honour to depart from such practice.

Conclusion

The Full Court’s dismissal of ASIC’s appeal shines a light on the complexity of the existing financial services regulatory architecture under the Act. Particularly in respect of its application to the increasingly innovative landscape of digital assets and their related products. The decision will nevertheless provide some guidance for those crypto asset providers who have been searching for regulatory clarity from the Courts in the absence of a legislative response from the Federal Government to date.

Crypto market participants should continue to monitor and adapt to the ever-evolving regulatory landscape, including seeking legal advice and updating compliance frameworks to keep pace with the latest developments.

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Authored by:
Edward Martin, Partner
Philip O’Brien, Senior Associate
Jin Lim, Lawyer
Helena Chrisomalidis, Lawyer

[1] ASIC presses for penalties and crypto regulatory clarity with Block Earner appeal, 10 July 2024.